On a &#163;1.5bn downtrack

NO ONE seems to have noticed it, but John Swift, the rail regulator, last week wiped around £1.5bn or more from the proceeds the Government can expect if and when it privatises Railtrack.

Initial estimates for the stock market value of Railtrack, the core chunk of British Rail that owns the track, stations and signalling, had been around the £4bn mark. But I gather £2.5bn now looks more realistic after Mr Swift cut sharply the level of charges future franchisees will have to pay Railtrack.

The idea is to make the franchises more attractive to would-be private sector train operators and to reduce the level of subsidy the Treasury will have to fork out to sweeten the loss-making routes.

The annual track access charges of £2.2bn paid to Railtrack will now be slashed by a one-off 8 per cent and then subjected to a formula based on the inflation rate minus 2 per cent.

Put bluntly, Railtrack is faced with collecting £160m less in annual revenues while shouldering precisely the same costs. But there is worse: Mr Swift has also decided it will have to share the profits it makes on its extensive property portfolio - one of the most enticing aspects of Railtrack to prospective investors - with the train operating companies.

Bob Horton, the pugnacious chairman of Railtrack, is putting a brave face on the changes, claiming it will make it easier to privatise the company because the lower subsidy level will mean less uncertainty.

Mr Swift's reforms may well be a good thing for the public finances. The Exchequer will receive smaller proceeds from the privatisation, but it is committing itself to less outlay for years into the future.

The short-term impact, however, is to add £1.5bn to next year's public sector borrowing requirement. That will make the Government's much-heralded pre-election tax cuts a little harder to deliver.